Can Michigan Driver Responsibility Fees Be Discharged?

This post was originally published in 2011, we have updated and re-published here because we believe it will benefit our readers.

Can Michigan Driver Responsibility fees be discharged through Chapter 7? The answer to this question is not entirely obvious, as these fees are imposed pursuant to a relatively new Michigan statute, and it does not appear that the bankruptcy courts sitting in our state have addressed the issue. Public Act 165 of 2003 (see MCL 257.732a), known as the Driver Responsibility Law, took effect October 1, 2003.

This law was amended by Public Act 52 of 2004 and Public Act 460 of 2008. As described by the State of Michigan’s website, ‘[i]ts purpose is to encourage traffic safety by deterring potentially dangerous driving behavior. Other states, including New Jersey and Texas, have implemented similar laws. Michigan’s Driver Responsibility Law calls for a monetary assessment for drivers who:

[1] Are convicted of specific qualifying offenses, or

[2] Accumulate seven or more qualifying points on their driving records….’ The imposition of such fees - which range from $100.00 to $1,000.00 per offense per year - can be devastating to the personal finances of individuals who have typically already paid courts costs and fines in association with the same offense or offenses. This financial hardship is often compounded by the fact that the payment of Driver Responsibility fees is necessary in order to maintain (or reinstate) a Michigan Drivers’ License. It is therefore not surprising that many individuals hope to discharge these fees through a Chapter 7 bankruptcy.

The Bankruptcy Code, at 11 USC 523(a)(7), sets forth a number of debts that cannot be discharged, and in particular states that ‘[a] discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt … [that is] a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit….’

The Bankruptcy Code does not define ‘fine’ or ‘penalty’ at 11 USC 101, and because Michigan’s Driver Responsibility Law is relatively new, the question does not appear to have been addressed in any Bankruptcy Court decisions. Applying the ordinary definitions of these terms, it would appear that, although a Driver Responsibility fee is probably not a ‘fine’ because it is not paid to or imposed by a court, it would likely be considered a ‘penalty’ for the purposes of the Bankruptcy Code. Therefore, such fees are probably cannot be discharged under Chapter 11 (Although it remains possible that the payment of such fees could be spread out of three or five years pursuant to a Chapter 13 plan).